Proactive Investors -
- FTSE 100 in upbeat mood, up 58 points at 7,341
- Banks advance after passing Bank of England stress test
- British Airways owner, IAG, dives after Deutsche downgrade
Thousands of mortgage holders face £1,000 monthly hit
Bank of England governor Andrew Bailey is speaking after the publication of the financial stability report, the Bank’s biannual health check on the UK economy.
The report made grim reading for homeowners with a mortgage.
The BoE estimated that by the end of 2026, around 200,000 households will see their monthly mortgage bills rise by £1,000 or more while around 1mln households with a fixed-rate mortgage will see their monthly mortgage repayments go up by about £500.
Bailey the impact of rising mortgage payments “is going to have an impact, clearly. That is part of the transmission of monetary policy, no question about that.”
For the average household, monthly interest payments will go up by about £220 if they remortgage during the second half of this year and their rate goes up by about 3.25 percentage points.
Around 4.5mln people with a fixed-rate mortgage have seen their monthly repayments go up since interest rates started to rise in late 2021, the Bank found.
The Bank of England also warned about signs of rising stress among the most indebted consumers and smaller businesses due to rising interest rates.
It said the UK economy has so far been resilient to higher rates, though it will take time for the full impact of higher interest rates to come through.
At the press conference Bailey said: “It is the case that elements of the global financial system do remain vulnerable to increased interest rates and uncertainty surrounding the economic outlook, and of course tensions geopolitically speaking.”
British Airways owner grounded by Deutsche downgrade
British Airways owner, International Consolidated Airlines Group (LON:ICAG) SA (LSE:IAG), sits top of the FTSE 100 fallers after being downgraded by Deutsche Bank (ETR:DBKGn).
Shares fell 3.2% after the German investment bank moved its rating to hold from buy as it cut price targets across the European airlines sector.
Analyst Jamie Rowbotham said: “We have seen some weakness in our fares data, with 60-day out prices for travel in August having screened ~2% down yoy on average, and walk-up fares in June ~6% down.”
He said while the idea of a slowdown did not resonate with the airlines in recent pre-close conversations, “we are nonetheless exercising some caution.”
For 2023, the bank has trimmed forecasts for the September quarter more than offset by upgrades to the Junw quarter and thinks assumptions for the December quarter are sufficiently prudent.
For 2024, however, Deutsche predicts fares will fall 6% year-on-year versus flat before.
This has “resulted in a material cut to our profit forecasts which now sit ~20% below consensus on average.”
Deustche has lowered its share price target for IAG to 165p from 200p.
The ban retains a buy rating on easyJet (LON:EZJ) PLC but cut its price target to 585p from 635p and a hold rating on Wizz Air (LON:WIZZ) with a reduced price target of 2,850p, down from 3,700p.
In Europe, it moved Air France-KLM (LON:0LN7) (OTC:AFLYY) to hold from buy and cut its price target to €1.85 from €2.3.
Lufthansa remains a buy with a price target of €11, down from €14.5.
Banks lead FTSE 100 higher
The FTSE 100 remains on the front foot with banks a firm feature after passing the Bank of England stress test.
Sophie Lund-Yates at Hargreaves Lansdown (LON:HRGV) said: "The tests come as a relief during a time that’s been marred by anxiety about regional banking failures in the US as interest rates have shot up in many major economies."
A combination of strong balance sheets, healthy asset-classes and a stricter regulatory environment mean the UK’s financial giants also have more room to help customers if things get tougher, including changing the terms of loans if needed.
The BoE also warned of signs of rising stress among the most indebted consumers and smaller businesses as interest rates have risen sharply around the world, although overall the UK economy has so far proved resilient.
In its latest financial stability report the BoE said: “Overall, UK businesses are expected to remain broadly resilient as the impact of higher interest rates comes through, but there will be increased pressure on some smaller and highly indebted businesses.”
Pearson (LON:PSON) was another firm feature, up 1.3%, after Citi made positive comments.
"We think Pearson's 1H results due on 31 July will act as a positive catalyst for the shares and we open a 30-day positive catalyst watch to take advantage of this," it said.
FTSE 100 opens higher, banks gain after passing stress test
The FTSE 100 made a bright start to trading with banks on the front foot after passing the Bank of England’s annual stress test.
At 8.15am London’s blue-chip index was up 18.56 points, or 0.25% at 7,301.08 while the FTSE 250 was little changed at 18,141.93.
The UK’s top eight banks would be “resilient” in an economic environment much worse than the one they face, and are well positioned to support households and businesses through a period of rising interest rates, the Bank of England said today.
The latest tests cover NatWest, HSBC (LON:HSBA), Barclays (LON:BARC), Standard Chartered (LON:STAN), Lloyds, Santander (BME:SAN), Nationwide and Virgin Money (LON:VMUK).
Shares rose, along with the market, with Lloyds Banking Group PLC (LSE:LON:LLOY) up 1.0%, Barclays PLC (LSE:BARC) up 1.1%, NatWest Group PLC (LSE:LON:NWG) up 0.7% and Virgin Money UK PLC (LSE:VMUK) up 2.8%.
However, the BoE also warned of signs of rising stress among the most indebted consumers and smaller businesses as interest rates have risen sharply around the world, although overall the UK economy has so far proved resilient.
In its latest financial stability report the BoE said: “Overall, UK businesses are expected to remain broadly resilient as the impact of higher interest rates comes through, but there will be increased pressure on some smaller and highly indebted businesses.”
In company news, JD Wetherspoon PLC (LSE:JDW) rose 3.9% after a strong trading update.
The pub chain backed current guidance as it reported sales rose 11.5% year-on-year in the 10 weeks so far of its final trading quarter and are up 12.9% in the financial year to date.
Bunzl PLC (LSE:LON:BNZL) fell 2.7% as RBC downgraded to underperform while International Consolidated Airlines Group SA (LSE:IAG), the owner of British Airways, fell 2.0% as Deutsche Bank downgraded to hold from buy as it cut price targets across the European airlines sector.
UK's top banks pass Bank of England stress test
The UK’s top eight banks would be “resilient” in an economic environment much worse than the one they face, and are well positioned to support households and businesses through a period of rising interest rates, the Bank of England said today.
In its annual stress test, the BoE said major UK banks would be resilient to a “severe stress scenario” that incorporated persistently higher advanced-economy inflation, increasing global interest rates, deep and simultaneous recessions in the UK and global economies with materially higher unemployment, and sharp falls in asset prices.
The latest tests cover NatWest, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money.
“The results indicate the UK banking system would be able to withstand the severe macroeconomic scenario and has the capacity to support households and businesses throughout the stress,” the BoE said in a statement.
The scenario is more severe than the 2007–08 global financial crisis and substantially more severe than the current macroeconomic outlook.
The stress test results showed no bank is required to strengthen its capital.
Speaking to MPs yesterday, leading bank executives said they have so far seen little evidence of rising arrears in loan books even as mortgage rates climb.
JD Wetherspoon backs guidance
Kicking things of today is a trading update from pub chain JD Wetherspoon PLC (LSE:JDW).
The pub chain run by the outspoken Tim Martin backed guidance as it reported strong sales growth in the final quarter of its financial year.
Martin, chairman of Wetherspoon's said: “The company expects profits in the current financial year to be in line with market expectations.”
Like-for-like sales for the first 10 weeks of the final quarter of the financial year increased by 11.5% in the fourth quarter to date compared to the previous year and by 12.9% year-to-date,
Martin forecast an improved outcome in the new financial year with the first half outcome expected to be in line with the second half of the current year.
FTSE seen higher ahead of US inflation figures
Good morning. The FTSE 100 is expected to open higher as investors await the latest US inflation print.
Spread betting companies are calling London’s blue-chip index up by around 15 points after closing up 8.73 points at 7,282.52 on Tuesday.
US markets were in an upbeat mood on Tuesday ahead of the numbers with the Dow Jones Industrial Average up 0.9%, the S&P 500 up 0.7% and the Nasdaq Composite up 0.6%.
Economists expect the headline US inflation figure to ease to 3.1% in June from 4.0% in May, on an annual basis. The core figure - which excludes food and energy - is expected to drop to 5.0% from 5.3%.
"With another rate rise due later this month this week's CPI numbers won't impact how the Federal Reserve is likely to act in 2 weeks' time, but the numbers might shine a light in whether we can expect another rate hike in September," said Michael Hewson, CMC Markets UK chief market analyst.
New Zealand's central bank left its key interest rate unchanged Wednesday, saying it expected inflation to ease further in coming months.
Back in London, and the early focus will be updates from JD Wetherspoon, Tullow Oil (LON:TLW), PageGroup and Renold.